ABILITY TO ACT ON YOUR DECISION

Many analysts pride themselves on calling the market, or predicting what the market will do. The analyst gets paid for calling the market. The trader gets paid for trading the market. Therefore, the trader must be able to decide the proper action but more importantly be able to act on and live through the decision.

The trader can be wrong about a prediction and still make money trading, whereas the analyst gets paid to predict but not to trade. Some analysts can predict markets accurately but may not be able to trade them successfully. Some traders can trade successfully, but be poor at prediction because they change their opinions so quickly.

The distinction between analysis and trading is crucial. The trader must act on the trade, live through the position, and accept the consequences. The trader puts money on the line; the analyst puts recommendations on the line. Recommendations may be explained away or forgotten, whereas a trade cannot. It is simply not enough to call the market-you must also trade it.

For example, assume the market is breaking out of a long rectangle formation and you feel it is time to go short. The market takes a severe plunge so you wait to sell a rally to obtain better prices. But the hoped-for rally never comes and the market plummets to new lows. The decline finally ends and the market begins to rally. Should you sell now? Or is this the beginning of a bottom? You missed the move but called the market correctly. What reward does a trader receive for this? Nothing.

Countless times people brag how they would have bought the bottom or sold the top, but never actually trade. Some traders are correct about market action, but enter or exit at the wrong time and end up losing money. This can be a frustrating situation every trader has experienced.

Carrying overnight positions can be nerve wracking, especially when there is the possibility of important news coming out at any time. For example, being short coffee during the drought season can be disastrous if the market opens limit up the next day due to crop damage. Being long can be just as agonizing to watch the market crash if the rains do eventually develop. Living through these times with a position is much more difficult than looking back at a chart and reviewing obvious entry and exit levels.

It is totally different to say what you would have done after the fact, versus what you actually would have done. It is often much easier to know what should have been done after the fact, but much more difficult to determine a proper course of action beforehand. It is so much harder to trade with your hand to the fire and the markets moving quickly for and against your position. Rapidly disseminated bullish and bearish information can cause the market to change direction immediately. It is very easy to question your original position. Monday morning quarterbacks are not limited to just sports, but their post predictions after the fact are of no use in trading today.

Trading demands you make clear and quick decisions, then execute them without delay.